3 Reasons Why You Don’t Need to Be Rich to Start Investing
Reason 1: Most of The Time, the Market Goes Up
The market goes up 52.8% of days and 77.8% of years. Understanding this simple historical fact should be enough for anyone to want to start do-it-yourself (DIY) investing.
Whether you are young, old, or somewhere in between, everyone has time to watch a small amount of money grow into a lot of money. Investing is not a get rich-quick method and requires patience. However, it is never too late to start investing and it is definitely never too late to start investing on your own with low fees.
You don’t need to be either rich or a genius to win in the market over a long period of time explained by The Conservative Income Investor. Over a long period of time, strong businesses are able to grow and retain earnings to ultimately increase their valuation year over year. As you may know from this blog, I am a big fan of market declines as they provide opportunity. Like Buffett, I like buying stocks like I buy socks… on sale.
The NY Times published data on the US Market’s history of positive returns.
Since many of us use the Standard & Poor’s 500-stock index as a proxy for the market, let’s take a look at the period from 1950 to 2012 to see how often we’re likely to feel positive, based on how often we check our investments:
If you checked daily, it would be positive 52.8 percent of the time.
If you checked monthly, it would be positive 63.1 percent of the time.
If you checked quarterly, it would be positive 68.7 percent of the time.
If you checked annually, it would be positive 77.8 percent of the time.
You cannot time the market as it requires a crystal ball. Don’t wait to start.
Reason 2: Dividend Reinvesting
Many businesses offer investors (you) cash distributions in the form of dividends that can be re-invested to buy more shares of the business. This is where compound interest really takes effect. Some businesses have been capable of historically raising their dividend payments every year. This creates a double compounding effect of share reinvestment and the increase of the quarterly dividend payout. Andrew from Investing From Beginners explains how certain businesses are capable of providing fantastic long term returns with dividend reinvestment plans (DRIP) in Dividend Champions.
Businesses that are capable of raising dividend payouts for 25 or more consecutive years are called Dividend Aristocrats as explained in Episode 15 of the Stratosphere Investing Podcast. Nick from Sure Dividend joined the show to discuss how this group of companies have been able to outperform the broader market by several percentage points annually. A few percentage points annually over the broader market is not an easy thing to do consistently, but is very possible and creates a surprising amount of wealth. Simply following these dividend aristocrats would beat 84% of “professional” money managers after paying their high salaries.
Reason 3: Fees are Lower Than Ever
Fees have truly never been lower for DIY investors. Perfect for investors with low amounts of free cash available, this is the perfect time to start investing. The first step is to open a discount brokerage service. For Canadians, I have explained how to choose the best brokerage account for TFSA today.
Questrade is a really good option for beginners as they have the lowest fees and no ETF buy commission fee. Exchange Traded Funds (ETFs) are a good place to start investing and learn how the market works. ETFs allow investors with low amounts of money available to a balanced portfolio immediately through index funds.
It really is the best time to be or become an investor. There are so many free tools for investors to use and start their own DIY portfolio. Due to low fees, the market’s long-term history of good performance and the beauty of dividends, you don’t need to be rich. You just have to start.